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News Explainer: The Economic Crisis in Sri Lanka

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Sri Lanka economic crisis explained

Explained: the Economic Crisis in Sri Lanka

Sri Lanka is currently in an economic and political crisis of mass proportions, recently culminating in a default on its debt payments. The country is also nearly at empty on their foreign currency reserves, decreasing the ability to purchase imports and driving up domestic prices for goods.

There are several reasons for this crisis and the economic turmoil has sparked mass protests and violence across the country. This visual breaks down some of the elements that led to Sri Lanka’s current situation.

A Timeline of Events

The ongoing problems in Sri Lanka have bubbled up after years of economic mismanagement. Here’s a brief timeline looking at just some of the recent factors.

2009

In 2009, a decades-long civil war in the country ended and the government’s focus turned inward towards domestic production. However, a stress on local production and sales, instead of exports, increased the reliance on foreign goods.

2019

Unprompted cuts were introduced on income tax in 2019, leading to significant losses in government revenue, draining an already cash-strapped country.

2020

The COVID-19 pandemic hit the world causing border closures globally and stifling one of Sri Lanka’s most lucrative industries. Prior to the pandemic, in 2018, tourism contributed nearly 5% of the country’s GDP and generated over 388,000 jobs. In 2020, tourism’s share of GDP had dropped to 0.8%, with over 40,000 jobs lost to that point.

2021

Recently, the Sri Lankan government introduced a ban on foreign-made chemical fertilizers. The ban was meant to counter the depletion of the country’s foreign currency reserves.

However, with only local, organic fertilizers available to farmers, a massive crop failure occurred and Sri Lankans were subsequently forced to rely even more heavily on imports, further depleting reserves.

April 2022

In early April this year, massive protests calling for President Gotabaya Rajapaksa’s resignation, sparked in Sri Lanka’s capital city, Colombo.

May 2022

In May, pro-government supporters brutally attacked protesters. Subsequently, Prime Minister Mahinda Rajapaksa, brother of President Rajapaksa, stepped down and was replaced with former PM, Ranil Wickremesinghe.

June 2022

Recently, the government approved a four-day work week to allow citizens an extra day to grow food, as prices continue to shoot up. Food inflation increased over 57% in May.

Additionally, the increasing prices on grain caused by the war in Ukraine and rising fuel prices globally have played into an already dire situation in Sri Lanka.

The Key Information

“Our economy has completely collapsed.”
Prime minister Ranil Wickremesinghe to Parliament last week.

One of the main causes of the economic crisis in Sri Lanka is the reliance on imports and the amount spent on them. Let’s take a look at the numbers:

  • 2021 total imports = $20.6 billion USD
  • 2022 total imports (to March) = $5.7 billion USD

In contrast, the most recent reported foreign currency reserve levels in the country were at an abysmal $50 million, having plummeted an astounding 99%, from $7.6 billion in 2019.

Some of the top imports in 2021, according to the country’s central bank were:

  • Refined petroleum = $2.8 billion
  • Textiles = $3.1 billion
  • Chemical products = $1.1 billion
  • Food & beverage = $1.7 billion

Of course, without the cash to purchase these goods from abroad, Sri Lankans face an increasingly drastic situation.

Additionally, the debt Sri Lanka has incurred is huge, further hampering their ability to boost their reserves. Recently, they defaulted on a $78 million loan from international creditors, and in total, they’ve borrowed $50.7 billion.

The largest source of their debt is by far due to market borrowings, followed closely by loans taken from the Asian Development Bank, China, and Japan, among others.

What it Means

Sri Lanka is home to more than 22 million people who are rapidly losing the ability to purchase everyday goods. Consumer inflation reached 39% at the end of May.

Due to power outages meant to save energy and fuel, schools are currently shuttered and children have nowhere to go during the day. Protesters calling for the president’s resignation have been camped in the capital for months, facing tear gas from police and backlash from president Rajapaksa’s supporters, but many have also responded violently to pushback.

India and China have agreed to send help to the country and the the International Monetary Fund recently arrived in the country to discuss a bailout. Additionally, the government has sent ministers to Russia to discuss a deal for discounted oil imports.

A Foreshadowing for Low Income Countries

Governments need foreign currency in order to purchase goods from abroad. Without the ability to purchase or borrow foreign currency, the Sri Lankan government cannot buy desperately needed imports, including food staples and fuel, causing domestic prices to rise.

Furthermore, defaults on loan payments discourage foreign direct investment and devalue the national currency, making future borrowing more difficult.

What’s happening in Sri Lanka may be an ominous preview of what’s to come in other low and middle-income countries, as the risk of debt distress continues to rise globally.

The Debt Service Suspension Initiative (DSSI) was implemented by G20 countries, suspending nearly $13 billion in debt from the start of the pandemic until late 2021.

Sri Lanka Economic Crisis - countries by level of debt distress

Some DSSI and LIC countries facing a high risk of debt distress include Zambia, Ethiopia, and Tajikistan, to name a few.

Going forward, Sri Lanka’s next steps in managing this situation will either serve as a useful example for other countries at risk or a warning worth heeding.

Ongoing Updates

Since this article was published the situation has changed significantly in Sri Lanka. Protesters have received their original demand calling for president Rajapaksa to step down — both he and prime minister Wickremesinghe have agreed to resign. This comes after protesters stormed the president’s palace causing him to flee the country.

Note: The debt breakdown in the main visualization represents total outstanding external debt owed to foreign creditors rather total debt.

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Who Owns the Most Vehicles per Capita, by Country?

Here are the highest vehicles per capita by country as a growing global middle class is fueling car ownership rates around the world.

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This bar graph shows the number of vehicles per 1,000 people around the world.

Who Owns the Most Vehicles per Capita, by Country?

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

In 2020, there were 289 million vehicles in use in America, or about 18% of the global total.

With one of the largest car ownership rates worldwide, the number of U.S. cars on the road have more than doubled since the 1960s. But how does ownership compare to other countries, and who is seeing the fastest growth rates amid a rising global middle class?

This graphic shows vehicles per capita by country, based on data from the International Organization of Motor Vehicle Manufacturers (OICA).

Highest Car Ownership Rates Worldwide

Below, we rank countries based on the number of registered vehicles in use per 1,000 people, including both passenger cars and commercial vehicles as of 2020:

CountryNumber of Vehicles in Use
per 1000 Inhabitants
Average Annual Growth Rate
2015-2020
🇳🇿 New Zealand8693%
🇺🇸 U.S.8602%
🇵🇱 Poland7614%
🇮🇹 Italy7561%
🇦🇺 Australia7372%
🇨🇦 Canada7073%
🇫🇷 France7041%
🇨🇿 Czechia6583%
🇵🇹 Portugal6402%
🇳🇴 Norway6351%
🇦🇹 Austria6322%
🇬🇧 UK6322%
🇩🇪 Germany6272%
🇪🇸 Spain6272%
🇬🇷 Greece6171%
🇯🇵 Japan6120%
🇨🇭 Switzerland6041%
🇧🇪 Belgium5901%
🇳🇱 Netherlands5882%
🇫🇮 Finland5771%
🇸🇪 Sweden5441%
🇩🇰 Denmark5402%
🇮🇪 Ireland5403%
🇲🇾 Malaysia5356%
🇸🇰 Slovakia5133%
🇱🇾 Libya4904%
🇧🇬 Bulgaria485-1%
🇭🇷 Croatia4743%
🇸🇾 Syria4727%
🇭🇺 Hungary4634%
🇰🇷 South Korea4582%
🇷🇴 Romania4387%
🇮🇱 Israel4044%
🇷🇺 Russia3892%
🇧🇾 Belarus3871%
🇲🇽 Mexico3584%
🇹🇼 Taiwan3441%
🇦🇪 UAE3438%
🇷🇸 Serbia3304%
🇦🇷 Argentina3110%
🇹🇭 Thailand2775%
🇨🇱 Chile2461%
🇰🇿 Kazakhstan226-1%
🇨🇳 China22314%
🇹🇷 Türkiye2204%
🇧🇷 Brazil2141%
🇺🇦 Ukraine192-1%
🇮🇷 Iran1832%
🇿🇦 South Africa1761%
🇪🇨 Ecuador1523%
🇻🇪 Venezuela149-1%
🇩🇿 Algeria1443%
🇲🇦 Morocco1124%
🇨🇴 Colombia1111%
🇮🇶 Iraq1114%
🇵🇪 Peru884%
🇮🇩 Indonesia785%
🇪🇬 Egypt644%
🇳🇬 Nigeria565%
🇻🇳 Vietnam5017%
🇵🇭 Philippines383%
🇮🇳 India3310%
🇵🇰 Pakistan207%

Clinching top spot is New Zealand, a country known for its love of cars.

With nearly nine cars on the road to every 10 people, this figure is notably high considering that children make up about 20% of the population. The majority of cars are imported second hand from Japan thanks to a wave of deregulation in the 1980s along with the country being a major producer of right-hand drive cars.

The U.S. falls close behind, with a clear preference for trucks and SUVs. In fact, the Ford F-1 Series has been the best-selling vehicle in America for 42 consecutive years.

In Europe, Poland has the highest number of vehicles per person, but one of the lowest share of electric vehicles (EVs). While EVs make up nearly 16% of all cars in top-ranking country Norway, they comprise 0.1% in Poland. On average, EVs account for 0.8% of passenger cars in the European Union.

Driven by an expanding middle class, Vietnam has seen the fastest growth in ownership. Between 2015 and 2020, the motorization rate grew by an astonishing 17% each year. Additionally, China witnessed 14% growth while India’s vehicles per 1,000 people increased 10% annually over the period.

The Top EV Markets, by Country

As EV sales gain momentum, here are the biggest markets worldwide, based on the number of all-EV cars in use as of 2022:

CountryEstimated Number of EVs in Use
2022
🇨🇳 China11,000,000
🇺🇸 U.S.2,100,000
🇩🇪 Germany1,000,000
🇫🇷 France620,000
🇳🇴 Norway590,000
🇬🇧 UK550,000
🇳🇱 Netherlands340,000
🇰🇷 South Korea300,000
🇨🇦 Canada250,000
🇯🇵 Japan210,000

Source: IEA Global EV Outlook 2023

China is home to over half of the world’s EVs.

Its foothold on the global EV market can be explained by its close proximity to the raw materials used in EV batteries. In fact, China produces roughly 70% of the world’s rare earth metals and has more battery production capacity than all other countries combined.

Adding to this, China developed key government policies that specifically tackled operational hurdles, such as battery constraints, leading to innovation in core technologies. In 2023, EVs made up 31% of all car sales in China, boosted by government incentives and strong consumer demand.

Norway is another leader in the EV market, whose government began introducing EV policies as early as 1990. By 2025, the country aims to phase out internal combustion engine vehicle sales completely. About 80% of all vehicles sales in Norway were EVs in 2022, the highest in the world.

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